The Wells Fargo Economics Group released its California Economic Outlook for February, 2014. The report noted that while recovery has been slow in the past, "[T]he state has methodically made progress working through a number of major impediments, most notably the overhang of foreclosures and distressed homes left over from the housing bust."
The outlook cites a California Association of Realtors (CAR) report that shows sales of existing homes fell 13.8 percent in January from a year earlier, largely from a decline of foreclosure inventory. The report notes, "The median price of an existing home rose 22.1 percent in January to $410,990."
Homes are taking a little bit longer to sell than a year ago—44.3 days on the market. The group said, "These trends, however, reflect more of a normalization of the housing market."
In January, California home prices increased 20.3 percent from a year ago, according to a report from CoreLogic.
The sluggishness of the for-sale market has created a new and growing segment of rental homes, according to the outlook. The difficulty of qualifying for a mortgage and affordability issues of new homes are driving people to rent in metropolitan areas closer to where they work.
Consequently, the Wells Fargo report comments, "Residential construction has also been slow to recover. Activity has improved, but much of the action has been in apartments, which helped pull multifamily permits up 24.9 percent over the past year on a 12-month moving average basis."
Vacancy rates are just 3.1 percent in the Bay Area.
The Bay Area, particularly San Francisco, continues to see home prices that are well above their prerecession peak. Prices are up 19.1 percent from a year ago, and home inventories are falling.
However, rising prices have put off some buyers, "Home sales declined in the Bay area, with San Francisco and Napa posting the largest losses," the outlook said.
Michael Wolf, an Economist at Wells Fargo, thinks many of the trends in California, and specifically the San Francisco, could transfer to the nation.
"I think a number of trends we are seeing in California are also evident throughout the nation. One is the strength of high-tech industries in San Francisco and San Jose. Other areas with a large concentration of high-tech employers are also leaders of economic growth in their respective states (e.g. Austin, Raleigh and Seattle)," Wolf said in an email to DS News.
Wolf continued, "Existing home sales have been relatively weak recently, though the drop seems to be particularly severe in California. Nationwide, some of this may be able to be blamed on the weather, but in general the housing market recovery was bound to moderate from some of the breakneck speeds we were seeing earlier in the recovery."
Unemployment figures play a part in California's recent housing climate. Unemployment fell 1.4 percentage points, with unemployment at 8.3 percent for the end of the year.
The report notes that job and income growth will continue to strengthen further, and the pace of home price appreciation will moderate.